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Financial Institution Letters


[Federal Register: May 8, 1997 (Volume 62, Number 89)]
[Notices]
[Page 25191-25192]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08my97-79]

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FEDERAL DEPOSIT INSURANCE CORPORATION


Statement of Policy on Assistance to Operating Insured Depository
Institutions; Rescission of Policy Statement

AGENCY: Federal Deposit Insurance Corporation (the FDIC).

ACTION: Rescission of policy statement.

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SUMMARY: As part of the FDIC's systematic review of its regulations and
written policies under section 303(a) of the Riegle Community
Development and Regulatory Improvement Act of 1994, the FDIC is
rescinding its Statement of Policy on Assistance to Operating Insured
Depository Institutions (the Policy Statement). The Policy Statement,
which reflects various statutory requirements of the Federal Deposit
Insurance Act (the FDI Act), provides criteria for the FDIC's
consideration of proposals it receives for assistance to operating
insured depository institutions under section 13(c) of the FDI Act
(assistance proposals). The FDIC is rescinding the Policy Statement, as
it is duplicative of statutory requirements in the FDI Act, it is not
required by the FDI Act or necessary for purposes of the FDIC's
consideration of assistance proposals it receives. The FDIC does not
anticipate receiving many viable assistance proposals in the future, as
it is unlikely that any assistance proposals will meet the statutory
requirements.

DATES: This Policy Statement is rescinded May 8, 1997.

FOR FURTHER INFORMATION CONTACT: Herbert J. Held, Assistant Director,
Division of Resolutions and Receiverships, (202) 898-7329; Sean
Forbush, Resolutions Specialist, Division of Resolutions and
Receiverships, (202) 898-8506; Barbara I. Taft, Assistant General
Counsel, Legal Division, (202) 736-0183, Michael B. Phillips, Counsel,
Legal Division, (202) 898-3581, FDIC, 550 17th Street, N.W.,
Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review
of its regulations and written policies. Section 303(a) of the Riegle
Community Development and Regulatory Improvement Act of 1994 (CDRI)
1 requires the FDIC, the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, and the
Office of Thrift Supervision each to streamline and modify its
regulations and written policies in order to improve efficiency, reduce
unnecessary costs, and eliminate unwarranted constraints on credit
availability. Section 303(a) of CDRI also requires each of the federal
banking agencies to remove inconsistencies and outmoded and duplicative
requirements from its regulations and written policies.
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    \1\ 12 U.S.C. 4803(a).
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    The current Statement of Policy on Assistance to Operating Insured
Depository Institutions, which was adopted by the Board of Directors of
the FDIC, was published in the Federal Register on December 18,
1992.2 The Policy Statement, which reflects various
statutory requirements of the FDI Act, provides criteria for the FDIC's

[[Page 25192]]

consideration of proposals it receives for assistance to operating
insured depository institutions under section 13(c) of the FDI Act. The
FDIC published for comment in the Federal Register on July 3, 1996, a
proposed revision to the Policy Statement, which updated and revised
the Policy Statement.3 The proposed revision to the Policy
Statement resulted from the FDIC's systematic review of its regulations
and written policies under section 303(a) of CDRI. The following
primary changes to the Policy Statement were reflected in the proposed
revision to the Policy Statement: (i) Deletion of references to the
Resolution Trust Corporation, which statutorily ``sunset'' on December
31, 1995; and (ii) the incorporation of the requirements of section 11
of the Resolution Trust Corporation Completion Act of 1993,4
which revised section 11(a)(4) of the FDI Act, 12 U.S.C. 1821(a)(4), to
prohibit the use of the Bank Insurance Fund or the Savings Association
Insurance Fund to benefit shareholders of a failed or failing insured
depository institution, except in cases of systemic risk determined in
accordance with section 13(c)(4)(G) of the FDI Act.5
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    \2\ See 57 FR 60203 (December 18, 1992).
    \3\ See 61 FR 34814 (July 3, 1996).
    \4\ Pub. L. 103-204 (1993).
    \5\ In pertinent part, section 13(c)(4)(G) of the FDI Act, 12
U.S.C. 1823(c)(4)(G) provides that the FDIC has the authority to
provide to an operating insured institution assistance that does not
meet the requirements of section 13(c)(4)(A) of the FDI Act only if
the Secretary of the Treasury (in consultation with the President
and upon the written recommendations of two-thirds of the Board of
Directors of the FDIC and two-thirds of the Board of Governors of
the Federal Reserve System) determines that the FDIC's compliance
with section 13(c)(4)(A) of the FDI Act would have serious adverse
effects on economic conditions or financial stability and the
assistance to the operating insured institution would avoid or
mitigate such adverse effects.
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    The only comment received on the proposed revision to the Policy
Statement was a letter dated November 25, 1996, from Representative
James A. Leach (R-Iowa), Chairman, Committee on Banking and Financial
Services, U.S. House of Representatives. Chairman Leach indicated his
strong opposition to providing any assistance which benefits
shareholders of a failed or failing institution, except in cases of
systemic risk as provided in section 13(c)(4)(G) of the FDI Act.
    As part of its ongoing review under section 303(a) of CDRI, the
FDIC has determined that the FDIC's written policies can be streamlined
by rescinding the Policy Statement. The Policy Statement, which is
duplicative of statutory provisions of the FDI Act, is not required by
the FDI Act. It is not necessary for consideration by the FDIC of
assistance proposals it receives. Assistance proposals the FDIC
receives will be evaluated against the applicable provisions of the FDI
Act.
    The Policy Statement has not been utilized much in recent years. As
section 13(c)(4) of the FDI Act requires the FDIC to select the
resolution alternative that involves the least cost to the relevant
deposit insurance fund, any open assistance proposal must be evaluated
on a competitive basis with other available resolution alternatives.
Because of the cost savings inherent in FDIC-assisted transactions
involving the appointment of a receiver for an institution, it is
unlikely that an open assistance proposal will be more cost effective
than an available closed institution resolution.6 Further,
it will be extremely difficult for assistance proposals to meet the
least-cost test, the requirements of section 11(a)(4), and other
applicable statutory requirements. The FDIC has not approved any
assistance proposals since 1992, when two proposals were approved.
During the period 1993-1996, the FDIC received only two assistance
proposals which were not approved, as they did not meet the applicable
statutory requirements.
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    \6\ Among the cost advantages favoring a resolution transaction
following appointment of a receiver for an institution are the
effect of the receivership on the contingent liabilities of the
failed institution, the potential for uninsured depositors and other
unsecured creditors to share in the loss incurred on the institution
and the ability of the FDIC as receiver to repudiate burdensome
contracts.
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    For the above reasons, the Policy Statement is rescinded.

    By order of the Board of Directors.

    Dated at Washington, D.C. this 29th day of April, 1997.

Federal Deposit Insurance Corporation
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 97-11966 Filed 5-7-97; 8:45 am]
BILLING CODE 6714-01-P
Last Updated 07/17/1999 communications@fdic.gov